Fall Off In German Sentiment

The European Centre for Economics has released the key ZEW Surveys for the month of May. There has been a measurable fall off in the Eurozone reading for the month, which has dropped to 55.2 from 61.2 in April, although this indicator remains in expansionary territory markets were disappointed as they had been anticipating a rise towards 63.5.

The primary drag on the ZEW this month appears to be coming from Germany. The domestic version of this Economic Sentiment indicator came in at 33.1, over 10 points lower than the April reading of 43.2, this is highly contractionary and highlights a very measured forward outlook towards the German economy. Markets had expected this indicator to fall slightly this month but only to the approximately 41.0.

On a more positive note the ZEW Current Situation reading in Germany has come in slightly improved, the measure of the present economic environment has produced a reading of 62.1, this represents a pick up on the April number of 59.5 and also outperformed the expected level of 60.5.

It is difficult to take optimism from this month’s sentiment numbers out of the Eurozone and it’s largest member state economy. It is however also difficult to consider these readings as overly detrimental to the Zone’s recovery. The German economy is performing strongly and as such the negative future outlook reading can be interpreted in one of two ways.

On the surface such a weak reading would suggest that in the minds of those surveyed an economic downturn may be imminent. More likely however is that the weak outlook figure represents a prediction of a slight slowing in the pace of growth, but nonetheless continued growth. Also important to bear in mind is that the German future outlook reading is always on the low side regardless of the actual future economic prospects of the country, this is representative of cautiousness rather than negativity among those surveyed.

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